Nio Posts Disappointing Vehicle Margins on One-Off Charges

Nio Stock at a Glance

• Current Morningstar Fair Value Estimate: $15.50
• Nio Stock Star Rating: 4 stars
• Economic Moat Rating: None
• Moat Trend Rating: Stable

Nio Earnings Update

Nio’s NIO fourth-quarter vehicle margin declined 14 percentage points year over year to 6.8% due to: 1) inventory provisions and losses on purchase commitments related to last-generation ES8, ES6 and EC6 models that are scheduled to be phased out; and 2) rise in battery cost. Management indicated that vehicle margin would stage a sequential recovery in the second half this year on better product mix. With enlarged losses on softer vehicle margin, we slightly increase our net loss forecast for 2023-24. We reduce our fair value estimate to USD 15.50 per ADS (HKD 120 per share) from USD 16.00 per ADS (HKD 126 per share). Our fair value implies a forward price/sales ratio of 2.1 times.

For the first quarter, management guided vehicle delivery to grow 20%-28% year over year to 31,000-33,000 units and total revenue to increase 10%-16% year over year to CNY 10.9 billion-CNY 11.5 billion. The midpoint of guidance implies March delivery to be around 11,000 units, which we believe is in line with market expectation, considering the production line upgrades needed for the new models. Nio will start delivering three new-generation SUV models ES8, ES6 and EC6 in the second quarter. Management commented during the briefing that it is confident of maintaining the full-year target of about 250,000 units of sales, doubling 2022′s level.

Maintaining Positive View on Nio

Despite the near-term margin pressure, we maintain our positive view as Nio enters a strong model cycle with improving sales momentum driven by new models. Delivery contribution from models built on the second-generation platform—ET7, ES7 and ET5—was 78% in the fourth quarter, compared to nil at the beginning of 2022. In addition, first-generation SUV models ES8, ES6 and EC6 are due for upgrade in second-quarter 2023, boding well for our price and margin outlook. We believe Nio’s premium branding through exemplary customer service and innovative charging technologies will differentiate itself from competition and benefit from vehicle upgrade demand.